Is There Inheritance Tax in Australia?

In many countries around the world you must pay tax on money that you inherit as a beneficiary of a deceased estate.

In Australia however there is currently no inheritance tax payable. That doesn’t mean though that there are no tax obligations at all.  A a beneficiary of an estate, and also a person preparing an estate plan, should be aware of these tax obligations.

Tax obligations for assets that are inherited

When an asset is inherited, such as real estate or shares, capital gains tax may apply when the asset is disposed of.

Income tax will also apply on any income that is received from the asset, such as share dividends or rental income.

If you are “presently entitled” to income from a deceased estate that has not been finalised (for instance rental income) you need to include this income in your tax return.  You can ask the executor of the estate to provide you with the information that you need to include in your tax return.

If you inherit real estate and don’t dispose of it, then it is likely to incur land tax.  Land tax in Victoria is a tax imposed on the ownership of land within the state. It is an annual tax levied by the Victorian State Revenue Office (SRO) based on the market value of the land. There are exemptions including for owner-occupied primary residences.

Superannuation death benefits

Superannuation that is paid after a person’s death is called a “superannuation death benefit”.  There may be tax to pay on a superannuation death benefit depending on:

·         Whether you were a dependant of the deceased;

·         Whether the super is paid as a lump sum or income stream;

·         Whether the super is tax free or taxable (and whether the super fund has already paid tax on the taxable component).

·         Your age and the age of the person when they died.

Inheritance can affect pensions

Inheriting money or other assets could affect your entitlement to a Centrelink aged pension.  It is important to seek professional financial advice in relation to this as the rules are complex.

Financial and taxation advice should be sought

If you have inherited money it is a good idea to seek advice from an appropriately qualified professional such as an accountant or financial planner.

Consider incorporating a testamentary trust into your will

A testamentary trust can help to offset the tax obligations of a deceased estate.  When you are making an estate plan you should consider whether setting up a testamentary trust would be advantageous.  Contact Alison today for more information.